Acquire a New Operating System for Your Real Estate – Trusts

Posted on October 9, 2013 by

We are talking about a more global approach to real estate investing using land trusts. Investors should be acquiring a new operating system for their real estate. Just as Windows Vista includes word processing, spreadsheet, e-mail, contact management, Photoshop, and more.

A land trust as an operating system delivers benefits in all phases of your real estate business. It provides a management structure, a partnership and syndication system, a financing alternative, an estate planning tool, a firewall, and much more.

To treat the land trust as merely a title holding entity ignores many of its best features. A trust provides the software for many investment strategies that deliver a host of benefits to its users. For example:

An Acquisition Technique

The trust is an excellent device to use in negotiations. The principals are unknown and must be consulted for approval of any changes. Unless, the negotiator has authority to accept certain terms. The transaction can be private, especially if the property is deeded into trust by the current owner and that the beneficial share is purchased immediately thereafter. This offers many benefits concerning the purchase price, seasoning issues, unreasonable gain, closing costs, and more.

In 1963, shortly after Florida approved a land trust statute, over 27,000 acres of land was purchased near Orlando by a number of trusts and corporations. This privacy of intent is available to any person or entity and is used often to acquire parcels from multiple owners.

This third party negotiation lessens the stress and improves the outcomes.

A Management Structure

The anonymity of a trust is helpful in managing any property since the trust terms dictate allowable behavior, payment rules, deadlines, maintenance requirements, refunds and dozens of other procedures that must be followed because the trust dictates. Tenants, neighbors, code enforcement, zoning and every type of bureaucracy are involved and sometimes confused by the trust rules.

The lack of personal involvement makes dealing with difficult tenant situations less stressful, more impersonal and more enforceable than face-to-face dealings. Some investors probably make up the rules as they go, so I am told.

The property manager is merely an agent for the trustee and is obliged to go by the letter of the law, as directed by the trust terms. Disagreements or tenant requests must be forwarded to the trustee, who in some cases must get the approval of the beneficiary, which is often a difficult and lengthy process.

A Partnership and Syndication Facilitator

The privacy and flexibility of a land trust is a much more facile device for sharing real estate ownership with several people than through the use of tenant in common or joint tenant interests which must be reflected in deed recordings. The change in ownership through assignments of beneficial interests can be done privately without witnesses or notaries.

The speed, privacy and cost of partnering within a land trust are far superior to the alternative. The partners can take their proceeds in different directions upon the sale of the property. Some may do a 1031 exchange and some may take the cash. This is very difficult, costly and time-consuming in a partnership.

A Financing Alternative

Lending or borrowing in a land trust is faster, less expensive and safer than with the use of a deed-of-trust or mortgage. The Uniform Commercial Code procedures are well established in the law and can be used by investors in land trust properties. Typically, a note is signed by the borrower, a security agreement represents a deed-of-trust, a collateral assignment of the beneficial interest is made by the borrower to the lender as security for the loan. Upon default, the procedure to acquire the property is quicker and less expensive than a foreclosure.

As a borrower, by putting your lender in the position of greater safety, less expense and shorter recovery time you should be able to borrow money at a lower rate, faster.

An Estate Planning Tool

Probate is avoided with trust properties by listing the successor beneficiaries in the trust agreement providing for the orderly transfer of property to desired parties and also avoiding the need to probate the estate in different states.

A Gifting Platform

Gifting beneficial shares is much easier using certificates of beneficial interest representing the current $12,000 limit. It can be done privately without deeding interests in the public records.

A Closing Choice

Since the ownership of real estate in a trust is considered personal property, it can be bought and sold privately without the use of title or escrow agents. The shares of beneficial interest can be transferred without witnesses or notaries. A private sale or purchase or 1031 exchange can be closed in your office or remotely. It is recommended to use a contract of purchase and to complete a HUD-1 closing statement. The form can be found on the HUD website at hudclips.org/forms/.

A Firewall and Spam Filter

The trust delivers virus protection and filtering of unwanted messages far superior to Norton or McAfee software. Tenants, rejected applicants, contingency fee attorneys, tradesmen, salesmen, all variety of bureaucrats, and other undesirables will find it next to impossible to penetrate these protections.

Conclusion

Changing your business model to trust operation is a simple process. There is a deed to a trustee and a trust agreement. The trust agreement is simply a contract between two parties, the trustee and the grantor. Other ancillary documents are used to buy, sell, amend, mortgage, lease and otherwise operate the property. You will find no more paperwork, and not much less but the benefits are vast. Take a trust class when it is offered again, buy a book, borrow or plagiarize the forms or use some of the clever techniques you are skilled at to acquire the ability to form your own trusts. A skilled trust attorney is always recommended but seldom found.

Jack SheaJack Shea has been investing in real estate since 1978. He is a licensed Realtor and Mortgage Broker. He has done syndications, mobile home development, bought and sold mortgages, notes and options on real estate as well as facilitating 1031 exchanges. Jack has taught classes to investors nationwide on lease-purchase contracts, note buying, land trusts, exchanges and IRA investing.

Contact Jack Shea

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